Flowers Foods: Reports Q4 and Full Year 2015 Results

Thomasville / GA. (ff) Flowers Foods Inc., the United States’s second-largest producer and marketer of fresh packaged bakery foods, reported financial results for the company’s fourth quarter and year ended January 02, 2016 and provided guidance for fiscal 2016. Reported results reflect that the fourth quarter of fiscal 2014 was a 13-week quarter and fiscal 2014 was a 53-week year. The fourth quarter of fiscal 2015 was a 12-week quarter and fiscal 2015 was a 52-week year. The company’s fiscal 2016 will also be a 52-week year.

Fiscal 2015 Summary:

Compared to the prior fiscal year

Sales increased 0.8 percent to 3.779 billion USD.
Excluding acquisitions and the extra week last year, sales increased 1.2 percent.
Adjusted for items affecting comparability, net income per diluted common share (EPS) increased 2.2 percent to 0.92 USD.
Adjusted for items affecting comparability, earnings before interest, taxes, depreciation and amortization (Ebitda) increased 2.7 percent to 440.7 million USD.
Dividend increased 17.0 percent to 0.5675 USD per share.

Fourth Quarter Summary:

Compared to the prior year fourth quarter

Sales decreased 2.2 percent to 858.4 million USD.
Excluding acquisitions and the extra week last year, sales increased 0.5 percent.
Adjusted for items affecting comparability, EPS decreased 20.0 percent to 0.16 USD.
Adjusted for items affecting comparability, Ebitda decreased 6.7 percent to 86.7 million USD.
Dividend increased 9.4 percent to 0.145 USD per share.

For 52-week Fiscal 2016, the Company Expects:

Sales in the range of 3.986 billion USD to 4.080 billion USD, representing growth of approximately 5.5 percent to 8.0 percent over fiscal 2015 reported sales of 3.779 billion USD.
EPS in the range of 0.98 USD to 1.04 USD, representing growth of approximately 6.5 percent to 13.0 percent over fiscal 2015 adjusted EPS of 0.92 USD.

President and CEO Allen Shiver said, «We are not satisfied with our performance in the fourth quarter. Even so, for the full year we delivered record adjusted EPS and we took important steps to position Flowers for opportunities in 2016 and beyond».

«While we continued to make significant progress on our strategic initiatives, our earnings in the fourth quarter were impacted by sales that were below plan. In line with channel data for the total store, the pace of Flowers’ retail sales in the fourth quarter slowed relative to trends we observed in the first three quarters. Due to the lower than anticipated sales, our earnings for the quarter were negatively impacted by approximately 0.03 USD per share. Additionally, certain costs originally planned for the first quarter of 2016 were incurred in the fourth quarter of 2015, impacting EPS by 0.01 USD.

«It would be a mistake not to recognize the team’s accomplishments during the year on several initiatives integral to Flowers’ long-term strategy to grow in underdeveloped categories and geographies».

«First, with our acquisitions of Dave’s Killer Bread and Alpine Valley Bread, we grew Flowers’ share in the fast-growing organic segment of the specialty premium category, extended our geographic reach, and broadened our retailer relationships».

«Second, our investments in growth, including the successful opening of our bakery in Lenexa, Kan., enhanced our ability to serve the Midwest with Flowers’ strong brands and position us to sustain our expansion market growth».

«Third, to keep up with the ever-changing consumer landscape, we have not only offered new items, such as our Cobblestone Bread Company “Right Sized” breads, but also carefully evaluated our product assortment, improving our merchandising and promotional strategies. We remain focused on trade promotion effectiveness and efficiency», Shiver said.

In fiscal 2015, Flowers generated operating cash flow of 327.3 million USD, which we used to make capital expenditures of 93.8 million USD, make debt repayments of 143.2 million USD (excluding withdrawals for recently completed acquisitions), increase our dividend per share by 17.0 percent year-over-year, and repurchase 0.3 million shares for 6.9 million USD.

Shiver concluded, «While we did not meet our fourth quarter objectives, fiscal 2015 was a strong year for Flowers. Looking ahead, recently completed acquisitions, which are a core part of our growth strategy, are expected to contribute between 5.2 percent and 5.7 percent to sales growth in 2016. And with our strong brands we are working to grow share in expansion markets while remaining a low-cost producer. The team remains keenly focused on executing our growth strategies and delivering shareholder value».

Segment Results for the Quarter and Fiscal Year

	12 Wks Ended	13 Wks Ended		52 Wks Ended	53 Wks Ended
	January 02, 2016	January 03, 2015	Percent Change	January 02, 2016	January 03, 2015	Percent Change
	(Amounts in millions, except EPS)
Sales:
DSD Segment:
Branded Retail	USD 455.4	USD 461.1	(1.2)	USD 2’010.8	USD 1’971.9	2.0
Store Branded Retail	98.8	110.7	(10.7)	457.2	486.9	(6.1)
Non-retail and Other⁽¹⁾	160.7	170.5	(5.8)	711.3	696.9	2.1
Total DSD Sales	USD 714.9	USD 742.3	(3.7)	USD 3’179.3	USD 3’155.6	0.8
Warehouse Segment:
Branded Retail	USD 39.7	USD 30.1	31.7	USD 139.8	USD 130.2	7.4
Store Branded Retail	25.3	26.9	(6.1)	114.4	121.7	(6.1)
Non-retail and Other⁽¹⁾	78.4	78.0	0.6	345.0	341.5	1.0
Total Warehouse Sales	143.4	135.1	6.2	599.2	593.4	1.0
Consolidated Sales	USD 858.4	USD 877.3	(2.2)	USD 3’778.5	USD 3’749.0	0.8

Adjusted Ebitda⁽²⁾:
DSD Segment⁽²⁾	USD 80.5	USD 89.7	(10.3)	USD 422.7	USD 407.4	3.7
Percent of DSD Sales	11.3%	12.1%		13.3%	12.9%
Warehouse Segment	18.4	15.6	17.9	72.0	66.6	8.1
Percent of Warehouse Sales	12.8%	11.5%		12.0%	11.2%
Unallocated Corp. Exp.⁽²⁾	(12.2)	(12.4)	(1.4)	(53.9)	(45.0)	19.9
Cons. Adj. Ebitda⁽²⁾	USD 86.7	USD 92.9	(6.7)	USD 440.7	USD 429.0	2.7
% of Consolidated Sales	10.1%	10.6%		11.7%	11.4%

Adjusted diluted EPS⁽²⁾	USD 0.16	USD 0.20	(20.0)	USD 0.92	USD 0.90	2.2

Note: Amounts and percentages may not compute due to rounding.
(1) Includes foodservice, vending, and contract manufacturing.
(2) See reconciliations of non-GAAP measures in the financial statements following this release

DSD Segment Fourth Quarter Results Commentary

Of the total DSD segment sales decrease during the quarter, pricing/mix was neutral, volume decreased 0.3 percent, the DKB acquisition contributed 3.8 percent, and the impact of the extra week in the prior year resulted in a negative impact of 7.2 percent. Excluding the effect of acquisitions and the extra week, branded retail sales were up slightly, with volume increases in white and soft variety breads, driven by Nature’s Own and Wonder, mostly offset by lower sales of sandwich buns and rolls, and sandwich rounds. New product introductions and further expansion in our DSD markets drove increased sales of Tastykake products. Driven primarily by the foodservice business, the non-retail and other category posted solid growth, excluding the impact of the extra week.

Adjusted Ebitda margin for the DSD segment decreased as a percentage of sales due to higher workforce-related costs and lower efficiencies (due to below-plan sales), as well as increases in outside purchases of product, primarily due to capacity constraints at DKB.

Warehouse Segment Fourth Quarter Results Commentary

Of the Warehouse segment’s sales increase, pricing/mix decreased 0.6 percent, volume increased 5.6 percent, the Alpine acquisition contributed 8.8 percent, and the impact of the extra week in the prior year resulted in a negative impact of 7.6 percent. Excluding the effect of the acquisition and the extra week, the slight increase in branded retail sales was primarily due to a positive shift in mix within branded snack cake and volume gains in bakery deli. Excluding the extra week, the improvement in store branded retail sales was primarily the result of higher store branded cake sales. The significant increase in non-retail and other sales was driven by new foodservice products.

Ebitda margin for the Warehouse segment increased as a percentage of sales, primarily due to ingredient cost decreases, partially offset by higher workforce-related costs and reduced efficiencies (due to below-plan sales).

Consolidated Fourth Quarter Results Commentary

As compared to the prior year fourth quarter, consolidated adjusted Ebitda decreased by 6.7 percent. Adjusted unallocated corporate expenses were elevated during the quarter, primarily due to higher legal expenses, and lower pension income – partially offset by lower stock-based compensation expense.

Depreciation and amortization increased due primarily to the DKB and Alpine acquisitions. Interest expense increased primarily due to higher average debt balances driven by recent acquisitions. Interest income decreased primarily due to lower average notes receivable balances. Income tax expense as a percentage of pre-tax income increased primarily as a result of the release of uncertain tax positions in the prior year.

Cash Flow

During the quarter, cash flow from operating activities was 46.7 million USD, capital expenditures were 32.5 million USD, cash paid for Alpine, net of cash acquired, was 109.4 million USD, and dividends paid were 30.8 million USD.

Dividends and Share Repurchases

The board of directors will review the dividend at its next regularly scheduled meeting. Any action taken will be announced following that meeting.

During the quarter, the company made no share repurchases. During fiscal 2015, the company repurchased 0.3 million shares at an average price of 21.54 USD per share. There are 13.7 million shares remaining on the company’s current share repurchase authorization.